Tuesday, August 18, 2009

Macro Man is still getting back into the swing of things, though he can confirm that real-time price action is indeed as noisy as it appeared to be on the South Carolina coast. Yesterday's weakness in risky assets has begotten a bounce thus far today; as has been the case recently, price action appears, on the face of it, to contradict the newsflow somewhat.

Yesterday's limp trade in US equities, for example, ignored further improvements in the Fed's Senior Loan Officer survey, which showed modest reductions in the tightening of credit (epitomized by the C&I survey below) and improved demand for loans in some sectors.

The spin that Macro Man saw was that this was less positive than expected....hence the lack of equity market reaction. Given that, from his perch, this result was probably about the best that could be expected, he can only conclude that, far from bullish equity sentiment being sourced in a flow-of-funds argument, it is actually based on equity punters really drinking the recovery kool-aid.

Anyhow, after yesterday's limp US trade and recent carnage in China, the stage was set for an interesting day's trade in Shanghai. There was certainly fodder for a further sell-off, via a Bloomberg story suggesting that included among the products of the stimulus package is a flourishing trade in copper speculation amongst the country's pig farmers. (Bubble, ccough, bubble.)

But as has been its wont recently, China confounded the Western expectation and put in a bounce today, helping to spur a recovery in risk assets during the European morning. So, too, has the release of data suggesting scope for a bounce in the trajectory of nominal GDP. The German ZEW, flawed as it is, surprised top the upside, with current conditions finally ticking higher.

In the UK, home of QE, meanwhile, CPI printed higher than expectations....again. While it remains below the 2% target, the undershoot is now pretty marginal (0.2%.) Interestingly, core CPI has recovered quite sharply indeed; if one believes that core CPI is an accurate herald of underlying inflation pressures (and to be fair, there is not much evidence that Merve thinks this way.....yet), well, then the BOE will have a rather interesting dilemma confronting it in a few months' time.

But that will likely be a story for another day (if not quarter or even year.) In the meantime, Macro Man expects a rather noisy period where tactical, rather than strategic, trades are likely to maximize his risk-adjusted returns.

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comments:

Getting color on today's action in Shanghai - we seemed v oversold in HK before lunch but the force of the rally end of day looks like rumor territory to me. No news of riots/violence at brokerages or anything like that just yet which was the turning point in the mini-tightening in late 06. Basically, they will only let out the air until punters get PO'd at which point the risk on game starts anew.

Also, flat money supply ... The growth in the Federal Reserve's balance sheet is due to bank bailouts, not money printing -- they borrow from the banks and use the money to buy risky assets from the banks at inflated prices ... This is not inflationary, it's not "quantitative easing" either.

That was peculiar, though I guess in fairness Shanghai only really went south when HK was on their tiffin break or whatever you want to call the 2 hour + closure from 12.30 local time...so when HK re-opened, you had the nice gap lower to catch up.